Market Challenges: Complexity and high transaction costs associated with CDM projects

The complexity involved in the CDM project cycle and meeting various regulatory requirements is one of the major challenges facing the global Clean Development Mechanism (CDM) market. Getting a project approved under the CDM is a lengthy process which requires extensive documentation and validation of the project's additionality from an independent third party. This results in high transaction costs for project developers to cover expenses towards formulation of Project Design Documents, engagement of Designated Operational Entities for validation and verification, establishing Monitoring and evaluation plans, etc. The costs escalate further for small scale projects due to diseconomies of scale. Moreover, uncertainty in the carbon credit prices post 2012 when the first commitment period of Kyoto Protocol ends, discourage many investors who are hesitant to invest in long gestation CDM projects under the current market conditions. High costs and complexity pose barriers, especially for harnessing emission reduction potential from small developing countries and project types.

Market Opportunities: Expansion of CDM projects in new sectors such as wastewater treatment and waste management

There exists a significant market opportunity for the growth of CDM projects in sectors such as wastewater treatment and waste management. These sectors were often not prioritized in the initial Clean Development Mechanism (CDM) market phase. However, they offer sizable mitigation potential. Waste management projects such as recovery and combustion of landfill gas, composting of organic waste and wastewater treatment projects through technologies like biogas capture offer new avenues for carbon credits. Many cities across developing nations are facing challenges of growing waste and have an unmet demand for scientific waste treatment solutions. CDM could facilitate environmentally-sound waste and wastewater projects by channelizing carbon financing to them. Global demand for credits from non-traditional project types would encourage project development even in small communities. This will also enhance sustainable development benefits of CDM.